Abstract
The crypto market moves fast, and Compound needs to stay ahead of the curve. Competitors are closing in — Morpho Blue, launched less than a year ago, has reached 70% of Compound v3’s TVL ($0.9Bn and $1.3Bn).
Morpho Blue allows users to create permissionless markets with customized collaterals and risk parameters. At WOOF!, we believe in leveraging what works, not reinventing the wheel.
Intro to Compound Sandbox
Compound Sandbox puts market creation in the users’ hands. Creators set the rules, managing collaterals, and risk tolerance while sharing fees with Compound. While it’s an extension of the existing Compound Finance app, Compound Sandbox will be hosted separately in the early stages.
Benefits to Compound
Alternative assets: Promising tokens that might be too risky for the main Compound markets can test their performance in the Sandbox. It’s the perfect proving ground.
Marketing: Market creators and projects behind collateral tokens will put their effort into promoting Compound Sandbox markets.
PID Controller: Rather than using a complicated process for market creation, we propose a new approach. Users can create markets by simply specifying the liquidity pools on a DEX and selecting their risk tolerance (low, medium, or high). The PID (proportional–integral–derivative) mechanism will then automatically balance supply caps and other market parameters. Creator will be able to deposit reserves to act as a buffer against bad debt.
Fees: Fees from liquidations and earnings will be split between market creators and Compound Treasury, generating additional revenue.
Liquidations: Timely liquidations are crucial for healthy market functioning. To support this, we’ll implement a liquidator bot that operates with a 1-block delay for Mainnet and a 3-block delay for L2s, giving other participants a chance to act. All fees from liquidations will be directed to the Compound Treasury.
TVL Increase: With zero liability for third-party actions, Compound guarantees the security and quality of markets created in the Compound Sandbox. This means the TVL from Compound Sandbox directly contributes to Compound Finance’s overall TVL.
Users Incentivisation: Market creators will be able to add additional rewards for both base and collateral assets to keep their users even more engaged. Rewards can be distributed in any ERC-20 token(s).
Ownership: Top-performing markets may be listed on main Compound Finance interface. Before this happens, market creators will need to transfer market ownership to the DAO, while the DAO needs to claim its ownership.
APR diversity: Different collaterals paired with the same base tokens create a diverse APR landscape, increasing the protocol’s appeal.
Security: A smart contract factory will create all Compound Sandbox markets, restricting third-party upgrades to the original codebase.
Brand: Optionally, we can whitelist creators whose markets will be visible on Sandbox UI, while any users will be able to create a market through Sandbox and host their front-end. For that purpose, we will provide SDK and documentation to make front-end integration as seamless as possible. We want to highlight that part of the fees will go to Compound Treasury from any market created.
Next steps
We’d love to hear from the community! Share your thoughts, concerns, or endorsements, as well as any feedback that can help make Sandbox an even better solution. Once we gather all inputs, we’ll walk you through the technical architecture of the solution.
Big thanks to @allthecolors, @Gauntlet, @cylon, @bryancolligan, @PGov, and @sharp for their valuable feedback as we shaped this initiative.